How Mangaung can help and hinder entrepreneurs
- Ivo Vegter
- 18 Dec 2012 03:28 (South Africa)
I recently recommended, on Twitter, Andile Khumalo’s excellent blog post about the distinction between entrepeneurship and small business, and how inadequately ANC policy documents address them. Khumalo is chief investment officer of MSG Afrika Investment Holdings and early next year plans to launch StartUpSA, a community of existing and aspiring entrepreneurs.
In response, Vuyisa Qabaka proposed I add my two cents. Qabaka, the “chief connector” at EmpowerWeb, an organisation that aims to crowd-source, as it were, groups of black professionals and entrepreneurs, offers advice for startups in a profile for TimesLive, after finance minister Pravin Gordhan mentioned his ideas in the budget speech of 2010.
Here, then, some thoughts on entrepreneurship as an engine for economic growth and job creation, and what ANC policy could do to stimulate it.
Broadly speaking, I agree with the views of both Khumalo and Qabaka. In particular, I would have added to Khumalo’s argument distinguishing between entrepreneurs and small businesses the observation that Qabaka makes, namely that there are too many obstacles in the way of both.
It is about the nature of these obstacles, and the very idea of government having a particular approach to entrepreneurship, that I would raise substantive issues.
Khumalo writes, about the ANC’s Economic Transformation Policy Discussion Document of 5 March 2012 (in PDF): “The document opens by stating: ‘We have an opportunity and an obligation to deliberate on actions which could best enable the economic emancipation of our people.’ The Oxford dictionary defines emancipation as ‘the fact or process of being set free from legal, social, or political restrictions; liberation’.”
Economic freedom is, indeed, the key to my view on the matter, but I fear my interpretation and that of the ANC are somewhat at odds.
I have often quoted from Henry David Thoreau’s famous 1849 essay entitled “On the duty of civil disobedience”. In it, he wrote: “The people must have some complicated machinery or other, and hear its din, to satisfy that idea of government which they have.”
This is equally true of politicians themselves. With the best of intentions, they feel they need to (and need to be seen to) be passing laws and writing regulations to better control the people by restricting what they believe to be undesirable actions and promoting what they believe to be beneficial.
The problem is, the government can never know this at a level of individual private enterprise. No single entity can do so, which is why “the private sector” is really just a convenient collective term for a staggering array of investors, inventors, and innovators, all of whom have different and competing ideas of what customers might need sufficiently much that they’d dedicate some of their limited incomes to it. This is why business failures are just as important as business successes, in the overall objective of rising prosperity and growth.
Note that the ANC’s policy document discusses “the creation of new firms”, but not their failure. They seem to think that politicians and bureaucrats are in a position to determine which to create and how to support them.
Would any government be able to discern the kinds of small, niche markets in which entrepreneurial businesses often thrive, or have the means to direct economic activity in such a way that all these widely differing demands upon productive industry can be satisfied? No. The best that government usually does is offer crude one-size-fits-all “solutions” to what the most vocal among its constituents – which usually means labour unions, organised lobby groups, or big business – assert they need.
So what we get is Telkom (raised by Qabaka as an obstacle to entrepreneurs), Transnet (raised by big business as an obstacle to export growth) and Eskom (raised by everyone as an obstacle to everything).
The problem is not only that such broad-brush solutions are insufficient even when they are efficiently implemented, but that what one lobby group or company or industry asserts it needs too often comes at the expense of another. Complex standards or onerous licence conditions benefit large, well-resourced companies, but raise barriers to entrepreneurs. Subsidies and tariffs may protect industries and the employment they create, but they often do so at the expense of other, competing businesses, and always do so at the expense of the consumer, whom the government is ultimately supposed to serve.
Thoreau continues with arguably his most famous line: “Yet [the] government never of itself furthered any enterprise, but by the alacrity with which it got out of its way. It does not keep the country free. ... It does not educate. The character inherent in the ... people has done all that has been accomplished; and it would have done somewhat more, if the government had not sometimes got in its way. ... Trade and commerce, if they were not made of india-rubber, would never manage to bounce over obstacles which legislators are continually putting in their way; and if one were to judge these men wholly by the effects of their actions and not partly by their intentions, they would deserve to be classed and punished with those mischievious persons who put obstructions on the railroads.”
Rarely has the role of government in promoting economic activity been better stated.
Qabaka mentions a number of obstacles, such as obtaining telecoms services or difficulty in raising finance. Others about which I have written in the past include:
- Import tariffs that make procurement by both industry and consumers more expensive, in the (misguided) hope of stimulating local production of those imports.
- Limits on property ownership in government housing programmes, which make such property useless as collateral and productive capital.
- “Buy local” campaigns, whether for purposes of stimulating small-scale local industry or limiting the impact of transport on the environment.
- Credit policy abuses among retailers, banks, and in particular, among our major telecommunications firms.
- Onerous licence conditions for all sorts of services, and the catastrophic consequences of failing to comply with bureaucratic rules, procedures and deadlines.
- Viewing flexible and casual labour as being somehow iniquitous and exploitative, opposition to which benefits only powerful union interests.
But another key difference between countries where entrepeneurship is an engine for growth and those where it is not, is what the legal consequences of business failure are.
Research by Shikar Gosh, a senior lecturer at Harvard Business School, finds that failure rates for startup businesses is between 30% and 95%, depending on how strictly you define “failure”.
University of Tennessee data suggests that a quarter of all startups fail in their first year. Half fail by year four. By year eight, two thirds have disappeared. Most business failures are caused by simple incompetence or inexperience – the very same reason why government cannot reasonably expect its carefully planned efforts at “service delivery” to exceed the success of the surviving third of multiple concurrent private competitors, once two thirds have failed.
What distinguishes truly entrepreneurial countries is what happens when a business does fail. Most successful entrepreneurs have learnt what it takes by failing. Famously, Henry Ford failed five times in business before founding his eponymous motor company. Rowland Macy failed seven times before his New York store became a success. Soichiro Honda was turned down for a job at Toyota before he started making scooters. Walt Disney was fired for lacking imagination and having no good ideas, and appeared to be proving his editors right by starting a number of business that failed, before he hit the winning formula. Richard Branson, Sir Philip Green, Donald Trump, Bill Gates, Frank Woolworth, all have similar stories.
Modern advice for entrepreneurs is not to avoid failure, but to fail fast.
In our country, however, it is hard for the founder of a failed business to pick themselves up, learn from the experience, and try again. Personal liability ruins them, and sequestration prevents a person from becoming a director of a formal company again. In addition, consumer credit blacklisting is a mess, affecting an estimated 2.4 million South Africans.
Result? The few among us who are capable and bold enough for entrepreneurship have one shot at it. If we fail, as most do at least once in their lives, that’s it. Game over. Thank you for playing. The government doesn’t think you deserve to try again.
True, one does wish to hold directors (and personal debtors) accountable for actual malfeasance, of course. If necessary, one wishes to claim from them the proceeds of their misdeeds, to recompense investors and customers who feel hard done by. But given that the Tennessee research finds fraud or neglect to be a factor in only 1% of business failures, is it not reasonable to bias the law a little towards helping failed entrepreneurs recover and try again, rather than punishing those who failed because of ill intent?
What concerns me about the ANC policy document on entrepreneurship is the apparent belief that the government ought to make choices such as one Khumalo quotes: “Should we look for new investors in mining in order to open new opportunities for black entrepreneurs, or should we go with more experienced existing companies?”
What bothers me is the notion that active, government-directed policy is required, rather than passively removing unnecessary restrictions, pitfalls and obstacles to starting new businesses. The policy document refers to “reducing unnecessary regulatory uncertainty”, but not to reducing unnecessary regulation.
It is troubling that policy makers seem so enamoured with the idea of picking winners and losers among private competitors by using the public fiscus to award tenders to companies labelled as “small, medium and micro enterprises”.
Nobody disputes – and the vibrancy of our informal economy is testament to – the work ethic and innovation of which South Africans are capable.
If it were easier to establish a formal businesses, easier to account for their operations to satisfy the ever-hovering taxman, easier or unnecessary to obtain the myriad licences now required to operate businesses, easier to hire and fire staff, and easier to recover from a failed business to try something else, we would produce more entrepreneurs, more small businesses growing into large ones, and more new large businesses displacing the lumbering incumbents that weigh so heavily on consumers today.
If the ANC’s answer to section 12 – “the role of the state in economic transformation” – were different, it wouldn’t need section 13 – “the challenge of implementation”. A policy document aimed at stimulating entrepreneurship ought to have at its heart the alacrity with which government resolves to get out of its way. DM
- My old South African flag
- Fearful Fukushima fiction fatigue
- Do we tolerate private sector corruption?
- In defence of a lion killer
- Save the rare wine and endangered craft beer
- Forever blowing bubbles: shale gas economics
- Promotion and Protection of Investment Bill: When “certainty” means “wait and see”
- This land is my land: a revolution
- The launch of SA's Libertarian Party: herding cats in time for 2014
- The African case against the ICC
- The fossil fuel subsidy myth
- Think of the little fishies!
- The hilariously misunderstood libertarian
- The sickly history of sweeteners
- Pants on fire, but they’re not mine
- The obstructionism of shale gas activists
- How mind-numbing numbers whip up fear
- Why pick on Khanyi Dhlomo?
- Half-measures will fail the rhino
- Malema’s righteous anger... and naïve confusion
- Lottery licence to go to one lucky winner
- Vaccinations: when the state stabs the people
- Do reusable shopping bags kill people?
- The long walk to serfdom
- The Karoo desperately needs development
- The trials of Samson Shuttleworth
- The girl who kicked the hornet’s nest
- Raping the discourse about rape
- Who is the reasonable man?
- Fracking: Debating a big deal
- Who needs the Queen’s English?
- Electric cars: Taking from the poor to give to the rich
- Business Licensing Bill: An indefensible defence
- Red-tape tourism
- The Big Business Bribery Bill
- On Thatcher and society, Vavi and the market
- Extinction: Let’s make up numbers and panic!
- Feeding the world is getting easier
- Stop talking shit: Build your own toilet
- Climate change is pseudo-science
- Anti-competitive competition law
- The Department of Less Government
- An open letter to President Zuma
- In defence of Kim Kardashian
- The world’s weirdest wildlife sanctuary
- Boycott calls are simple-minded
- In defence of vegans
- The population explosion implodes
- Environmental backpedalling picks up pace
- How Mangaung can help and hinder entrepreneurs
- The elusive libertarian enclave
- The Gathering: Ivo Vegter
- The hidden overemployment crisis
- The case for constructive environmentalism
- Privatise the Western Cape's shacks
- Tenders: Not open to employees or their families
- Hurricanes fuel climate sensationalism
- Next: Gross-out warnings on food
- No new deal: The failure of Zumanomics
- Benoni has a bright idea
- Was I wrong about acid rain?
- Public food gardens: Where dumb ideas thrive
- Rethinking the costly food label madness
- Give hunting a chance
- Fracking gets green light, but here's the risk
- Socialists, bless 'em, visit Cape Town
- Buy a 1Time ticket now
- Give the ANC credit where credit is due
- The myth of the competent apartheid government
- It's a disaster that 'peak oil' is not a disaster
- No Gravy: a label for sustainable business
- This lightbulb's going to blow
- Smokers? Get 'em up against the wall!
- Inflating the obesity scare
- Bring a Shotgun to School Day
- GMOs: Hacking genes to feed the world
- The hidden dangers of charity
- Fracking: the unread paper debated
- Fracking: The “U-turn” paper nobody has read
- Eco-cronyism is as dangerous as any other
- SKA: Be grateful Karoo residents didn't object
- Energy: Get cracking on fracking
- Fair trade, unfair trade-off
- Casual labour is only bad for Vavi's unions
- 'Externalities', the catch-all justification for regulation
- 'Externalities', the catch-all justification for regulation
- How do we fix our dismal education?
- Barter: the rebirth of sound money
- Rights are not entitlements
- Debunking 'limits to growth' inanities
- Tax: Why align with "most other countries"?
- Newspaper sensationalism doesn't help rhinos
- Rolling Stone reprises Gasland's fracking fantasies
- Cosatu's manipulative march move
- Why do 16 million people not constitute an economy?
- The age of smear politics
- Does fracking cause earthquakes?
- The Chinese model is morbidly obese
- Green tech: doubling down on a losing bet
- Rape, pornography, and hell's grannies
- Petrol taxes won't hurt the poor
- Jailtime mooted for bad weather warnings
- Let's ban bans, and start with CITES
- In defence of overpaid sport stars
- On the death of Kim Jong-Il
- COP17: Let's ban fire
- Cancer gets you when nothing else can
- COP17: The 'party on' agenda
- COP17: The Blue Line of Death
- New seven natural inanities
- Occupiers' anger is all that makes sense
- The Luddites and Technocrats live on
- Malema marches for economic slavery
- Profitable purveyors of pudendal prettiness
- Sense? Us?
- If they want rhino horn, let's sell them some
- "Stimulate" economy by ending telco abuses
- Executive pay makes nobody poorer
- Malema's real persecution
- Mogoeng: Lock up your daughters
- Don't mandate insurance, deregulate healthcare
- I sympathise with Malema's persecution complex
- Short selling: panicked pols ban proof of failure
- Don't blame those who saw it coming
- What's obscene about profit?
- In defence of Bombela
- Dear president Zuma, you are not above the law
- The economics of love
- Treasure the Karoo? Ban the SKA!
- Malema is right, you know
- Gautrain's PPP: political patronage profiteering
- Kumi Naidoo is no hero
- LeadSA fails to lead when it matters
- No logo means carte blanche
- The drug war: dopey but dangerous
- A response to fracking critics
- Don't vote. It's your right.
- Welcome Walmart
- If you're happy and you know it clap your hands
- Buy local, support poverty
- Ubuntu, the free-market way
- Karoo fracking scandal exposed!
- I'm ashamed for my profession
- The bill of bunkum
- Being gay: a brand new concept!
- Who's afraid of the nuclear wolf?
- The nationalisation canard
- Ogilvy should grow a spine
- The new robber barons
- A classy revolution: Why we cared
- Bombastic Bombela balks
- Liberty is more than mere democracy
- Gautrain has a law unto itself
- The irony of 'services for all'
- How to hire a hitman in SA
- Arrive alive and neurotic
- The oppression of taxis
- Protection of Information Bill and why WikiLeaks is so dangerous
- Fifa, Russia and Qatar deserve each other
- One day, we'll all hate WikiLeaks
- The cycling mafia strikes again
- What Julius got for Christmas
- Let's return the beads
- Away with fascist seat belt laws
- Tintin Mbeki in the Sudan
- How the ANC can make everyone happy
- Currency: the race to the bottom.
- Hurrah for national healthcare!
- Give Zimbabweans citizenship
- Carte Blanche has no carte blanche
- That finger-licking, lip-smacking taste
- Bomb the barbaric lot already
- Green tax: another raid is coming
- Do strikers deserve anything?
- The media will lose this battle
- Global warmism needs a fisking
- A glass half-full
- Go ahead, have a baby
- Stop the handouts - end xenophobia
- The right to fire
- FIFA's heart of darkness
- Have some self-respect
- I ordered an orange skirt
- Secretly, Match blames South Africa
- The stupendous Gautrain: a rare marvel!
- The Fifa conquistadors are coming!
- What's wrong with everyone?
- Leave poor BP alone
- The destructive power of government
- The bonsai economy
- The darkness of Africa
- Who is ripping off whom?
- Anatomy of a whitewash
- While FIFA takes over, we fight
- The pointless pretence of Earth Hour
- Ten reasons to reject climate alarmism
- Really, boycott the FIFA farce
- The climate dominoes fall
- Lessons in ethics from Dick Cheney
- Screw the consumer
- In defence of bankers
- Break the banking cartel
- Julius Malema, the walking contradiction
- Boycott FIFA
- Climate clarity
- In defence of Boney M
- Pray Copenhagen fails
- Capitalism is not unkind
- Climate fraud kills people
- Pop goes the hot air balloon
- Peace, love and schadenfreude
- The irony of the left
- Too late to cool it?
- Going cold turkey